Islamic finance offers comprehensive and competitive solution

KUALA LUMPUR: In serving the needs of the real economy, Islamic finance offers a comprehensive and competitive solution in meeting funding and investment requirements of businesses, said Tan Sri Dr Zeti Akhtar Aziz, the Governor of Bank Negara Malaysia.

She also said that given its international outreach and dimension, and ability to provide a total financial solution, Islamic finance is now at the frontier in which it presents new opportunities to support the economy and overall financial stability. Zeti said this in a keynote address at the EU-Malaysia Chambers of Commerce and Industry’s (EUMCCI) Quarterly Financial Panel Discussion 2012.

“Despite the challenging global environment and the increased uncertainties, the Islamic finance industry has continued to experience a double-digit growth of 21 per cent, and total syariah-compliant assets have surpassed the US$1 trillion mark. There are now more than 600 Islamic financial institutions operating in more than 75 countries in both Muslim and non-Muslim jurisdictions.

“The emergence of new financial centres in Asia and the Middle East and their increased connectivity has strengthened the foundations for intra and inter-regional linkages in trade and investments,” she added.

Zeti said the now well-developed existing Islamic financial markets, including the sukuk and Islamic money markets, have been particularly instrumental in intermediating funds in the Islamic financial system.

“It is fast becoming an important platform for international fund raising and investment activities that are generating increased cross-border flows.

From an outstanding amount of US$33 billion in 2006, the sukuk market has expanded to US$180 billion as at end-2011.

“Malaysia’s supportive framework and process for sukuk origination and sukuk listing also facilitates the issuance process of ringgit or non-ringgit denominated sukuk in our market.

“Efforts to deepen the sukuk market have provided significant opportunities for participation in this market, with the size of the Malaysian sovereign and corporate sukuk outstanding growing three-fold, from a total of RM120 billion in 2005 to RM353 billion as at end-2011,” she added.

Zeti said key to the development of Islamic finance in Malaysia, has been its progressive internationalisation and the introduction of more innovative Shariah-compliant financial solutions, that meet the increasingly more complex and diverse international business requirements.

She also drew attention to the fact that Islamic finance, which was previously domestic-centric, is now increasingly providing financial solutions for cross-border trade and investment.

“Progressive liberalisation has facilitated the internationalisation of Islamic finance.

“This has been reinforced by the dynamic pace of innovation in Islamic finance that has widened the range of financial products and services,” she added.

Zeti said Islamic finance has thus become an increasingly important channel for the efficient allocation of funds across borders and the diversification of risks. — Bernama

(Bernama, 09  March2012)

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Green sukuks to drive finance for climate change investment projects

The Climate Bonds Initiative, the Clean Energy Business Council of the Middle East and North Africa and The Gulf Bond and Sukuk Association today announced they have launched a Green Sukuk Working Group. The group aims to channel market expertise to develop best practices and promote the issuance of sukuks for the financing of climate change investments and projects, such as renewable energy projects.

Green sukuks are Shari'ah compliant investment securities that finance projects meeting eligibility criteria developed by the International Climate Bond Standards scheme. The first meeting of the Green Sukuk Working Group was held last week in Dubai, United Arab Emirates.

Aaron Bielenberg of the Clean Energy Business Council said "There are a significant and growing number of projects, for example renewable energy in the Middle East, that are ideally suited to sukuk investors. This group will help investors more easily identify Shari'ah compliant, clean energy investment opportunities."

Nick Silver of the Climate Bonds Initiative said "There is an urgent need to mobilize finance for both renewable energy and climate adaptation projects in both the Middle East and in other developing Muslim countries such as Bangladesh and Pakistan. Green sukuks are ideally suited for the financing of many of these investments." 

Michael Grifferty of The Gulf Bond and Sukuk Association said, "Interest in both Shari'ah compliant and ethical investing is on the rise. Green sukuks can support this trend by expanding the range of available financial instruments. Green sukuks also support national development strategies by offering longer term finance for essential infrastructure."

The eligibility criteria in terms of climate change solutions are derived from the International Climate Bond Standards scheme, backed by a group of leading, global institutional investors and environmental Non-Government Organisations consisting of the California State Teachers' Retirement System (CalSTRS); the Natural Resources Defense Council; the California State Treasurers' Office; the Investor Group on Climate Change (IGCC); the Carbon Disclosure Project; and the Ceres Investor Network on Climate Risk (INCR). 

The scheme also has an industry working group that provides input into the formulation of eligibility criteria, with participation from organizations such as the International Finance Corporation (IFC), Standard & Poor's, Aviva Investors and KPMG. 

The Green Sukuk Working Group invites participation from other organisations interested in the potential of green sukuk financing.

(AmeInfo.Com /09 March 2012)

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Malaysia: Affin Holdings Plan for Islamic banking ops in China to materialise in 2012

KUALA LUMPUR: Affin Holdings Bhd (Affin) expects its plan to set up Islamic banking operations in China to materialise in the second half (2H) of this year.

Deputy chairman Tan Sri Lodin Wok Kamaruddin said Affin would collaborate with its shareholder, Hong Kong-based Bank of East Asia Ltd (BEA), to offer Islamic banking products in China.

BEA, which holds some 23 per cent of Affin, is the biggest foreign bank in China.

“We hope to make a breakthrough this year. It takes a bit of time but Insyaallah (God willing), by middle or end of this year, it will materialise,” he told Bernama in an interview.

He said Affin was currently looking at various opportunities to set up some form of Islamic banking operations in China and it would be under the brand name of ‘Affin Bank’.

“It could be in the form of branches we have not finalised on the structure of the operations,” he said.

According to him, Affin wanted to further strengthen and tighten its relationship with BEA by not only working with the latter in Malaysia but also in China.

He said there was room for expansion for Affin Islamic, which has been growing steadily.

Affin Islamic is a wholly-owned unit of Affin Bank, which in turn is 100 per cent-owned by Affin Holdings.

Lodin also said that Affin Bank is revisiting its plan to acquire an 80 per cent stake in an Islamic bank in Indonesia, PT Bank Ina Perdana.

“We did announce that we wanted to acquire Bank Ina about one and a half years ago.

“However, we have to put this plan on hold because of a report, which stated that the central bank of Indonesia is considering to cap foreign ownership in its banks to less than 50 per cent.

“Now that this will not happen, we are revisiting the Bank Ina proposal again,” he said.

According to him,  Bank Ina, a full-fledged Islamic bank, has 20 branches in Indonesia.

“Indonesia is a good market as Muslims make up 90 per cent of its population of between 200 million and 300 million,” he said.

On the local front, Lodin said Affin Bank is looking at a few options to expand its Islamic finance business, either organically or inorganically.

“We are looking at various options to grow our Islamic banking business which includes possible merger.

“If there is an opportunity for us to grow by merger and acquisition, why not?” he added.

(Bernama, 06 March2012)

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IB TIMES 1000: Islamic Finance, Good Economy, Cash From Abroad Driving Growth in Bangladesh Banks

A growing economy, an historically innovative banking sector and a large expatriate population looking for a trusted envoy to handle their money back home combined to make Bangladeshi banks amongst the fastest growing companies in the world.

Three banks in the country -- First Security Islami Bank, Social Islami Bank and Mercantile Bank -- all make the IBTimes 1000 list of the fastest-growing publicly traded companies in the world, with those financial concerns noting compound annual growth rates of 71, 43 and 26 percent, respectively, over three years.

The IBTimes 1000 is an annual compilation, proprietary to the International Business Times, of the fastest growing publicly traded companies based on their compound annual growth rate as calculated over three years.

A big reason for the rise: the surging interest in Islamic finance, as more people have begun to bank on a system that withstood the global financial crisis of 2008 more robustly than the conventional standard.

"There's much more self-confidence within the Islamic finance sector, because it's weathered the crisis better," said Ibrahim Warde, an adjunct professor of international business in the Fletcher School of International Affairs at Tufts University.

"Prior to that, the criticism for Islamic finance was 'Why re-invent the wheel? We have a perfectly good system out there.' That is clearly not heard anymore," Warde added

That self-confidence has resulted in impressive revenue growth for the banks, as an increase in the depositor base and the business opportunities that come with that has led all three banks to increase both their investment and fee income since 2008.

In its last reported full-year statement, for example, First Security Islami Bank saw net investment income, the difference between profits earned in investment and those paid to depositors, jump over 400 percent, from 202 million taka ($2.46 million) to 1.01 billion taka. Income from fees was up 45.9 percent

Innovative products

At least two of the Bangladeshi banks in the IBTimes 1000, First Security and Social Islami, seem to have seen a lot of their deposit base growth result from the introduction of financial products devout Muslims feel don't go against their religious prohibition on "riba," a term that denotes excess compensation but is commonly understood as conventional interest.

The last full-year statement for Social Islami Bank, for example, shows the growth in term mudaraba deposits, which the bank uses for a special kind of shared-risk limited-partnership investments, of over 56 percent. Deposits into cash waqf fund accounts, which invest in certain kinds of socially beneficial enterprises and provide bank customers with a certificate of deposit, grew 58.9 percent at the bank.

A lot of those new deposits and loans are tiny in nature, the result of a country where the banking system in many ways served as a cradle to modern micro-finance during the late 1970s and 1980s with the rise of benchmark Grameen Bank.

"The whole idea of Islamic banking was looked at in terms of what Grameen Bank was doing," Warde, the Tufts professor says about the way new financial products have been developed in Bangladesh.

Remittances drive growth

Interestingly, Bangladeshis abroad sending money back to home banking institutions form a large part of the growth story for banks. Part of it is due to the fact banks in the country have historically controlled remittance transfers from abroad: international giant Western Union, for example, didn't have a deal to operate offices in the country until 2008.

Part of it is interest-rate arbitrage, as banks in the country pay double-digit returns on deposit. With many savings account in Western banking systems paying almost nothing, some Bangladeshis have decided it's worth it to put their money in banks back home, even if it is subject to foreign exchange and volatility risks

"These days, with interest rates in developed financial markets being at near zero, the relatively high returns in domestic banks and financial institutions should attract resources parked outside the country to be ploughed back in," Zaidi Sattar, chairman of the Policy Research Institute of Bangladesh, wrote in the country's Financial Express.

The influx of monies has had a marked effect. Bangladesh's savings surplus, the amount of currency deposited in the country's financial system minus the amount invested domestically, averaged 5 percent of total GDP between 2006 and 2009, for example.

Healthy growth

The final factor helping Bangladeshi bank growth: a healthy economic environment that barely nudged down as much of the rest of the world was mired in the Great Recession. GDP growth, according to theInternational Monetary Fund, has been constantly around the 6 percent mark, with the slowest growth rate, of 5.91, occurring in 2009.

That has helped the investment growth of many banks, like First Security Islami, which has 38.7 billion taka invested in domestic industry, mostly in import, trading and finance.

Those investments seem to jibe with the bank's mission statement, noted in its website to "above all, to add effective contribution to the national economy."

(IBT1000, 06 March2012)

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Mideast sukuk issuance seen over $14bn in 2012

The issuance of Islamic bond, or sukuk, in the Middle East could reach over $14bn this year, according to HSBC, as investor demand and the relatively lower volatility of the asset class drive sales. 

HSBC forecasts global sukuk volumes of $44bn in 2012, of which the Middle East region could comprise just over 30%, the bank’s Islamic arm Amanah, said yesterday.
Malaysia will continue to dominate sukuk issuance, with about 60% of total volumes forecast globally. 

“One of the key drivers of this will be the continued level of liquidity within the overall Islamic investor base, whether in Middle East or Asia, the market is still very much characterised by a high degree of liquidity and relatively limited levels of supply,” said Mohamed Dawood, managing director of Islamic global markets for EMEA. 

“From a volume, country, and issuer perspective, 2012 is going to be a year when this market will continue to make its mark.” 

Asked whether a possible sukuk default by UAE’s Dana Gas would affect forecast sukuk issuance this year, Dawood said it wouldn’t be “helpful”.

Dana Gas has a $920mn sukuk maturity due in October. It has hired Deutsche Bank to advise on the Islamic bond and address investor concern on a repayment plan. 

The UAE and Saudi Arabia are likely to dominate the regional sukuk issuance landscape. So far this year, Emirates Islamic Bank and First Gulf Bank, as well as private corporate and a first-time issuer, Majid Al Futtaim Holding, have issued sukuk. 

In Saudi Arabia, the General Authority for Civil Aviation (GACA) issued a $4bn equivalent riyal-denominated bond in January. “We increasingly expect that businesses consider sukuk as a reliable and permanent source of capital (in Saudi Arabia) ... and the number of investors and the appetite for sukuk is growing,” said Muhammad Farhan, head of Islamic Finance at HSBC Saudi Arabia.

(GulfTimes,07 March2012)

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Malaysia: CIMB Islamic plans to launch Ar-Rahnu Islamic pawnbroking

KUALA LUMPUR:The CIMB Islamic Bank plans to launch the Ar-Rahnu Islamic pawnbroking business in Malaysia in the second half of this year following the success of the similar business in Indonesia under CIMB Niaga Syariah, said chief executive officer Badlisyah Abdul Ghani.

“We’ve been fairly successful in our Ar-Rahnu business in Indonesia and it’s time for us to do the business here. We”ve obtained Bank Negara’s approval and once we finalise our delivery framework, we’ll launch the business most likely in the east coast.

“Malaysia’s market size is large and we believe there are ample opportunities for us despite being a late starter,” he told Bernama in an interview.

Although Badlisyah was cautious about the performance this year, he expects CIMB Islamic Bank and the group’s overall Islamic banking franchise to experience another good year.

“I am cautiously optimistic about 2012 in the light of all that is happening globally and the tighter regulatory framework and the general election fever at home, but I believe we will do well this year, better than last year. We are focused on growing our CASA (Current Account Savings Account) and hope to see double-digit growth in both our financing and deposit base,” he said.

CIMB Islamic has done well in Islamic investment banking, topping the global sukuk (Islamic bond) league table again last year, and entrenching its position as the second largest Islamic bank by assets in Malaysia and in the Asean region. For its financial year ended Dec 31 2011, CIMB Islamic Bank registered another record year, posting RM447 million profit before zakat (tithe), about nine per cent of the group’s pre-tax profit.

He said the bank’s assets grew 24.7 per cent to RM28.4 billion while the total financing book grew 28.9 per cent to RM29.2 billion, 15 per cent of the group’s total financing and 13 per cent of the overall financing asset of the Islamic banking industry.

On group level, Badlisyah said total revenue from Islamic banking operations across the CIMB Group totalled RM1.47 billion, the highest Islamic revenue generated since the group established the “CIMB Islamic” franchise in 2002.

Badlisyah said Malaysia’s operations contributed 89 per cent of the group’s total Islamic banking revenue, with Indonesia and Singapore accounting for about seven per cent and one per cent, respectively.

“We believe there is huge potential upside in Indonesia and we hope to grow its contribution to overall business to 10 per cent or more this year. The idea is to have a regionalised Islamic business in tandem with CIMB Group’s conventional business,” he added.

(Bernama, 05 March2012)

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